Data Diary

In search of a leading index for the resources sector

Posted on 03 February 2010

Down here in the mini-sub, the hunt is still on for a worthy leading indicator for the ASX200 material sector. Intuitively, I have assumed that by rolling together measures of price, volume and risk we should get something pretty interesting.  Hence the following:

It’s a chart of XMJ (ASX200 Materials Sector) mapped against index that has equal weights apportioned to the Baltic Dry Index and the RBA US$ non-rural commodity price index.  Looks kind of interesting you might say (if you were inclined to talk out loud to yourself while pondering the chart).

But then take a look at this:

It’s the same XMJ against the Baltic Dry Index only.  Taken at face value, seems that price has been following volume.

Now as I understand it the BDI reflects a whole lotta variables than shouldn’t effect Australia’s listed exporters (how many container ships is China building this week?). Still as a grass-roots indicator of changes in marginal demand for commodities, whether it be for speculative stockpiles or actually making something, the BDI has a pretty good track record over the last 5 years at least.